Donor cartel undercuts finance for renewables

Bank's climate funds finalised despite concerns

17 June 2008

The World Bank and donors have finalised the design of the climate investment funds (CIFs) despite continued complaints over their governance and worries over their investment in non-renewable energy.

Representatives of the World Bank, regional development banks, and 40 industrialised and developing held their third design meeting in mid-May in Potsdam, Germany. The final proposals now include a Clean Technology Fund (CTF) and a Strategic Climate Fund (SCF). The latter will serve as an umbrella mechanism for previously proposed funds on forests and adaptation (see Update 60).

The proposals now open with a long preamble of references to the UN Framework Convention on Climate Change (UNFCCC) and assert that the CIFs will be an interim measure designed for multilateral development banks (MDBs) to “assist in filling immediate financing gaps” with the inclusion of specific sunset clauses “linked to the agreement on the future of the climate change regime”.

Adaptation is a justice issue

It is anticipated that the CTF will receive contributions of $5 billion from donors, far outstripping the expected value of the SCF. The Bush administration has apparently pledged $2 billion over the first three years of the fund. A Pilot Program for Climate Resilience (PPCR) will be immediately established within the SCF, supplanting what the Bank had previously called the Adaptation Pilot Fund. The PPCR is expected to hold $500 million. The Forest Investment Fund previously proposed by the Bank will come under the SCF umbrella and is expected to be established by end 2008. A third element of the SCF, a planned fund for “greening energy access” in low-income countries requires more work.

The proposals are scheduled for approval by the Bank’s board 1 July, in time for the final announcement to take place at the G8 summit. The final negotiations on the CIF documents in Potsdam were held after receiving comments from external stakeholders, but the consultation period was just about a week long, making it difficult for NGOs to register their concerns.

Governance outside the Bank board

Both funds will be managed by trust fund committees rather than overseen by the Bank’s board. The trust fund governance arrangements will also apply to the sub programmes of the SCF. The committees of the CTF and SCF will consist of up to eight representatives from donor countries and an equal number of representatives from eligible recipient countries, a senior representative of the Bank and a representative of the regional development bank partners. Decision making will be made by consensus.

The SCF committee will include representatives of the UNFCCC, GEF, UNDP and UNEP as observers, while the CTF committee will include a GEF representative and a single UN representative. The SCF committee will invite civil society to identify a representative to observe but there was no specification of how the representative would be chosen.

In the case of both funds other interested parties will be confined to the Partnership Forum, a “broad based meeting of stakeholders” including: donor and eligible recipient countries, UN agencies, the Global Environment Facility (GEF), bi-lateral development agencies, NGOs and the private sector. It “will be convened annually to provide a forum for dialogue on the strategic directions, results and impacts of the CIF”. It will have no decision-making power.

The IBRD will serve as a trustee for both funds and act as a financial intermediary with respec to the funds’ proceeds administered by other MDBs. “Each MDB will be responsible for the use of funds transferred by the Trustee in accordance with its own fiduciary framework, policies, guidelines and procedures”.

Despite changes to reference the UNFCCC and ensure equal representation of donor and recipient countries on the committees, NGOs have complained that the changes do not go far enough. A new briefing paper by Third World Network (TWN) says that: “the design of the CIFs remain premised on an aid framework for climate change financing which places the parties to the financing in a donor-donee relationship contrary to international climate change principles and obligations”. TWN continues: “the language in the draft proposals implies recognition of the UNFCCC principles as merely guidance for policy agendas of the CIF, rather than as binding internationally negotiated commitments of state parties which must be respected”.

There has been considerable debate amongst potential donors about the design of the funds. Smaller countries, such as Austria, have worried about the make-up of the committee, preferring instead for the money to be under the control of the World Bank board where they have representation. As yet unsettled is a decision over the channelling of finance as grants or loans, the CTF proposal currently suggests a mix depending on the project. The UK prefers concessionary loans rather than grants because of domestic budget constraints. The US is said to support more grant finance.

NGOs have insisted that funds for climate change be additional to aid, given that the overwhelming responsibility for climate change lies with rich countries. Nnimmo Bassey of Friends of the Earth Nigeria stated “industrialised countries owe it as an obligation, if not a debt to places that have provided a lot of the resources to make them what they are… Adaptation is a justice issue”.

Clean technology or business as usual?

The CTF document’s key terms such as “transformational”, “low-carbon” and “clean technology” remain undefined. The CTF plans to be “technology neutral”, which in Bank speak means that there will be no exclusion list or priority for specific technologies, leaving the path open for business as usual. Stating that “it will not be possible to prescribe which policies, measure or technologies will achieve significant advances for all countries”, the document provides a non-exclusive list of options. References to clean coal have been reduced but not eliminated in the latest draft.

A recent report from the US think tank Centre for Global Development referred to it as a “cash cow for coal”. Various NGOs are calling on the Bank to help fill the cost gap between clean alternatives and fossil fuels, and facilitate the immediate scale-up of financing and support for renewable energy and have expressed their concerns at a US congressional subcommittee hearing on the planned US contribution to the CTF. A statement endorsed by over 120 NGOs was released in June demanding a delay to the launch of the CIFs until concerns over the proposals are addressed.

In May the author of the World Bank-commissioned extractive industries review, Emil Salim, has also weighed in to the criticisms. During the Bank’s consultation in Indonesia the former Indonesian environment minister, said that the Bank should back the Bali climate roadmap rather than starting a new fund of its own. He added “The World Bank executive board previously rejected a proposal to move away from funding fossil fuel projects and to push for renewable energy development,” and urged the Bank to support technology transfer.

Climate Change strategy misses the point

As the successor to the Clean Energy Investment Framework (see Update 58), the Strategic Framework on Climate Change and Development (SFCCD) for the World Bank Groupwill be proposed for endorsement by the board in September. The Bank is holding consultations around the world through the end of June. It has recently extended its public comment deadline until 15 July. Judging by recent reports they will not receive much positive feedback from their six template questions.

A June report by the World Resources Institute takes the Bank to task for not integrating climate change considerations into its lending. It finds that “almost 50 percent of lending in [the energy] sector was made without any attention to climate change at all.” The report, which builds on a 2005 study (see Update 46) analyses the country strategies and project documentation for the energy sector portfolios of the World Bank Group, the Asian Development Bank and the Inter American Development Bank. WRI finds that “operationally, opportunities to mitigate emissions and reduce climate risk are still not systematically incorporated into strategies and project development” of the MDBs in question. More than 60 per cent of financing in the energy sector across these institutions does not consider climate change at all and MDBs remain heavily invested in “business as usual”. In the case of the World Bank, overall attention to mitigation and adaptation in country assistance strategies is inconsistent, and over the past three years, only about 30 per cent of its financing in the energy sector has met two out of the four criteria for “integrating” climate change into decision making. Oil and gas projects and coal fired power continue to play a significant role in its portfolio.

A report by the Institute for Policy Studies, World Bank: climate profiteer, analyses the World Bank’s rapidly developing role as a global carbon broker (see Update 59). With a $2 billion portfolio of carbon finance funds (money used to buy cuts in greenhouse gas emissions from projects in developing countries), the report states that the Bank “irresponsibly and recklessly continues to perpetuate the world’s dependence on climate-altering fossil fuels while profiting from carbon trading”.

It finds that the bulk of the Bank’s carbon finance portfolio (75 per cent to 85 per cent) has been directed to carbon trades involving the coal, chemical, iron and steel industries. In contrast less than 10 per cent of all the funds flowing through these carbon trust funds are going to support ‘new renewable’ energy, defined as wind, geo-thermal, solar and mini-hydro. The report also states that the Bank is charging an estimated 13 per cent of the project cost for its brokering role. Other key findings of the report in relation to the Bank’s role in carbon finance include: lack of transparency, low progress on emissions cuts, and the de-prioritisation of poverty alleviation, with only 10 per cent of the finance focussing on sustainable development.